The termination of the bank-client relationship in South African banking law

• Pages: 54-69
• Author: Mzwandile Ngidi
• Published date: 01 June 2020
• Date: 01 June 2020
• DOI: 10.17159/2225-7160/2020/v53a4

54 2020 De Jure Law Journal

The termination of the bank-client

relationship in South African banking law

Mzwandile Ngidi

LLB (UP)

Final Year MPhil candidate: Tax Policy and Tax Administration

African Tax Institute, Department of the Economics University of Pretoria

SUMMARY

In the year 2015/16, some of the major South African banks such as

Standard Bank, terminated its bank-client contracts with its customers.

The customers argued that Standard bank issued no notice of termination

of these bank-client contracts. Alternatively, if the bank issued the notice of

termination, the period thereof was insufficient for the client to arrange for

an alternative baking option. As a result, the client argued that Standard

Bank unlawfully terminated the bank-client relationship. Consequently,

this paper examines this termination by considering, i) the nature of their

relationship, ii) the duties of both the bank and the client, iii) and iv) the

ways and circumstances which the bank-client contract may be terminated

in South African banking law.

“The customer’s morality and integrity are accordingly characteristics which

impact on the customer/banker relationship”1

1Introduction

After the Guptas’ scandal,2 in 2015/16 the major South African banks

issued notices of termination of their contractual relationship with inter

alia Oakbay Investment (Pty) Ltd, Siva Uranium (Pty) Ltd, TNA Media

(Pty) Ltd. The termination of contract came as a result of these Gupta

owned companies being suspected and alleged of its directly or indirectly

1 Lamont J in Breedenkamp v Standard Bank of South Africa 2009 (6) SA 277

(GSJ) para 32.

2 On the 21 September 2017, it was reported that South Africa's Gupta-

owned Oakbay and other affiliated holdings were faced allegations of using

ties with South Africa's present to wield undue influence. These companies

were further suspected of being directly or indirectly involved in various

illicit activities. Consequently, between December 2015 and April 2016 all

four major banks in South Africa, there are Standard Bank, Nedbank,

Barclays Africa and FirstRand bank terminated the account of these

companies controlled by the Guptas relying on the reputational risk. In

passing one should mention that the banks derived its right of termination

not only from the contractual relationship with these companies but more

particularly from the Financial Intelligence Centre Act 38 of 2001,

especially s 21, 21B, 21C, 22, 22A, 26A, 26B & 29.

How to cite: Ngidi ‘The termination of the bank-client relationship in South African banking law’ 2020 De Jure

Law Journal 54-69

http://dx.doi.org/10.17159/2225-7160/2020/v53a4

Termination of the bank-client relationship in South African banking law 55

involvement in various illicit activities.3 This article, therefore, seeks to

determine whether a bank can, without the client's consent, close the

client's bank account. As such I first evaluate the relationship between

the bank and its client. Second, I consider the duties of both the bank and

its client in relation to banking contractual relationship. Third, I answer

the above vexing question by considering the current case law where the

courts were called upon to pronounce on the question, the legislation

governing banking practice and journal articles that seek to address it.

Essentially the article focuses on the banker-client relationship after

the banking contract has been concluded. For convenience purposes, I

shall refer to the banker-client relationship as the (“BC relationship /or BC

contract”). Throughout the discussion, a “bank” and the “banker” are

used interchangeably to refer to the bank as defined by section 1 of the

South African Banks Act 94 of 1990 (the “Banks Act”),4 and other

applicable regulations. It should be noted that banking law is a

transnational subject and thus its operation is further subject to

international standards.5 Consequently, reference is also made to foreign

and international law to clarify some of the banking law principles that

regulate the banking system.

3 Writer “Another Major SA Bank Closes its Doors to Gupta Company” https://

businesstech.co.za/news/finance/119245/another-major-sa-bank-closes-its-

doors-to-gupta-company/ (assessed 2018-04-06). Minister of Finance v

Oakbay Investments (Pty) Ltd; Oakbay Investments (Pty) Ltd v Director of the

Financial Intelligence Centre (80978/2016)[2017] ZAGPPHC 576; [2017] 4

All SA 150 (GP) (18 August 2017), par 12. Annex Distribution (Pty) Ltd v Bank

of Baroda (52590/2017) [2017] ZAGPPHC 608; 2018 (1) SA 562 (GP)

(21 September 2017).

4 In terms of s 1 of the Banks Act, a bank means a public company registered

as a bank in terms of the Act. Moreover, the purpose of this Act is to

“provide for the regulation and supervision of the business of public

companies taking deposits from the public and to provider for matters

connected therewith”.

5 Basel Committee on Banking Supervision Core principles for Effective

Banking Supervision Banking for International Settlements (The Basel Core

Principles) (2012) 1-79. This publications accessible at https://www.bis.org

(assessed 2018-09-19). (United Nations Convention against Illicit Traffic in

Narcotic Drugs and Psychotropic Substances, 1998; United Nations

Convention against Transnational Organised Crime, 2000. The primary

regulator of the Reserve Bank of India; Financial Action Task Force (FATF)

available at https://www.fic.gov.za/DownloadContent/NEWS/PRESSRE

LEASE/FIC%20Annual%20Report&202012-13.pdf (assessed 2018-09-19);

Politically Exposed Person (PEP); Banks Act 94 of 1990; See article 68(1) of

the United Nations Convention against Corruption Resolution 58/4 of

October 31, 2003 and the Money Laundering and Terrorist Financing

Control Regulations.